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ABC: Backlogs Reveal Drop in Confidence

Thursday, September 2, 2021

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According to the data gathered from its June and July Construction Backlog Indicator reports, the Associated Builders and Contractors witnessed a teetering in contractor confidence.

From ABC member surveys recorded in June and July, the association found that its Construction Backlog Indicator rose to 8.5 months in June and remained unchanged the following month.

“The latest contractor survey results appear to reflect a dose of reality,” said ABC Chief Economist Anirban Basu. “For several months, contractors have been signaling all systems go despite rising materials prices, expanding labor shortages and costs and the lingering pandemic. While contractors continue to believe that the next six months will see rising sales, staffing and margins, the level of confidence has become slightly less sanguine as backlog failed to expand in July.

“It remains the case that many purchasers of construction services are contemplating delaying project start dates in hopes of securing more favorable bids at some point in the future,” said Basu. “Despite that, backlog remains well above pandemic lows. Not only is the broader economy continuing to recover, but massive ongoing injections of liquidity and stimulus mean that investors are flush with cash. One way to deploy cash is to invest in real estate, whether purchasing existing structures in need of refurbishment or engaging in new construction. These large pools of liquidity help explain the elevated levels of demand for nonresidential construction services during a period of rising costs. That in turn helps explain the confidence that many contractors continue to exude despite multiple commercial challenges.”

June, July Backlog Reports

June’s survey was conducted from June 20 to July 6 and was 0.5 months higher than in May 2021 and 0.4 months higher than June 2020.

photovs / Getty Images

According to the data gathered from its June and July Construction Backlog Indicator reports, the Associated Builders and Contractors witnessed a teeter in contractor confidence.

An industry breakdown shows a close, but mostly positive outcome from June between increases and decreases. The categories in which the backlog rose were:

  • the Commercial & Institutional industry, from 8.0 to 8.5;
  • the Infrastructure industry, from 8.7 to 10.2;
  • the Middle States region, from 7.5 to 8.0;
  • the Northeast region, from 7.3 to 8.9;
  • the West region, from 7.7 to 8.5;
  • the less than $30 million company size, from 7.6 to 8.0; and
  • the $30-50 million company size, from 6.8 to 8.5.

The categories in which the backlog declined were:

  • the Heavy Industrial industry, from 6.5 to 4.6;
  • the South region, from 9.5 to 8.4;
  • the $50-100 million company size, from 9.5 to 9.4; and
  • the greater than $100 million company size, from 13.4 to 12.8.

“Nonresidential contractors continue to predict a strong rebound in activity over the balance of the year,” Basu said in June. “Despite recent weakness in industry employment and spending data, contractors collectively remain upbeat. The neck-snapping pace of economic recovery, along with low financing costs and the return of projects that had been placed on the back burner during the pandemic, is translating into rising backlog and optimistic perspectives on employment, sales and profit margins.

“Rapidly rising materials prices was one of the leading threats to a vigorous nonresidential construction recovery; however, that factor has become a bit less concerning in recent weeks,” said Basu. “Still, materials prices are likely to remain meaningfully above pre-pandemic levels. Moreover, the shortage of skilled workers continues to worsen, driving up wages and project bids in the process. Demand for construction services is expected to be strong enough during the months ahead to allow contractors to pass many of these higher costs onto the purchasers of construction services, preserving margins in the process.”

July’s ABC member survey was conducted from July 20 to Aug. 2, which is reportedly up 0.7 months from July 2020.

An industry breakdown shows a close, but mostly positive outcome from June between increases and decreases. The categories in which the backlog rose were:

  • the Heavy Industrial industry, from 4.6 to 8.1;
  • the Infrastructure industry, from 10.2 to 11.3;
  • the South region, from 8.4 to 9.8;
  • the West region, from 8.5 to 9.0;
  • the $30-50 million company size, from 8.5 to 8.6;
  • the $50-100 million company size, from 9.4 to 10.0; and
  • the greater than $100 million company size, from 12.8 to 16.0.

The categories in which the backlog declined were:

  • the Commercial & Institutional industry, from 8.5 to 8.3;
  • the Middle States region, from 8.0 to 7.1;
  • the Northeast region, from 8.9 to 8.2; and
  • the less than $30 million company size, from 8.0 to 7.9.

While the seemingly flatline in growth witnessed in both months further suggests a fall in contractor confidence, the ABC reports that the index readings for sales, profit margins and staffing levels remained above the threshold of 50, indicating expectations of growth over the next six months.

“There is at least one other factor that has helped to stimulate contractor confidence,” said Basu. “A number of survey respondents indicated that they are observing less competition for projects. Many firms appear to have reached their capacity limits, and therefore are not able to bid on significant numbers of projects. At the individual firm level, the lack of substantial competition is consistent with stable or rising backlog. At the industry level, it is consistent with a lack of nonresidential construction spending growth as supply constraints make their mark. With firms racing to bolster delivery capacity, wages are predictably rising as contractors compete vigorously for talent. More than 75% of respondents expect to raise wages over the next six months.”

Past Numbers Released by ABC

In May, ABC reported that its backlog number pulled from May 20 to June 2, and is 0.1 months higher than in April 2021 and May 2020.

An industry breakdown shows a pretty even split from April between increases and decreases. The categories in which the backlog rose were:

  • the Infrastructure industry, from 7.9 to 8.7;
  • the Middle States region, from 6.9 to 7.5;
  • the South region, from 8.2 to 9.5;
  • the less than $30 million company size, from 7.4 to 7.6; and
  • the greater than $100 million company size, from 10.9 to 13.4.

The categories in which the backlog declined were:

  • the Heavy Industrial industry, from 7.3 to 6.5;
  • the Northeast region, from 7.9 to 7.3;
  • the West region, from 8.8 to 7.7;
  • the $30-50 million company size, from 8.5 to 6.8; and
  • the $50-100 million company size, from 10.3 to 9.5.

The backlog stayed stagnant in the Commercial and Institutional industry category with a number of 8.0.

   

Tagged categories: Associated Builders and Contractors; Associated Builders and Contractors Inc. (ABC); Business matters; Consumer Reports; COVID-19; Economy; Good Technical Practice; Market; Market data; NA; North America

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